(Adds Travelers, lawyer's comments)
By Jonathan Stempel
NEW YORK, July 22 (Reuters) - A federal appeals court ordered Travelers Cos Inc to pay more than $500 million to thousands of asbestos victims in a case stemming from the insurer's coverage of Johns-Manville Corp, an insulation maker that spent six years in bankruptcy during the 1980s.
The 2nd U.S. Circuit Court of Appeals in New York reversed a February 2012 ruling in which U.S. District Judge John Koeltl said conditions under three settlement agreements in 2004 that required Travelers to make the payment had not been satisfied.
Writing for a three-judge appeals court panel on Tuesday, Circuit Judge Ralph Winter said Koeltl's interpretation "could not reasonably have been intended by the parties, whatever Travelers' private hopes and dreams, and is not supported by the language of the agreements."
The 2nd Circuit ordered the reinstatement of a 2011 ruling by U.S. Bankruptcy Judge Burton Lifland, who oversaw Johns-Manville's bankruptcy, that Travelers make payments required under the 2004 agreements, plus $65 million of interest. Koeltl had reversed that ruling. Lifland died in January.
Patrick Linehan, a Travelers spokesman, said the insurer is reviewing Tuesday's decision, and has set aside reserves to cover the entire payout, apart from interest payments.
Many companies had stopped using asbestos for fireproofing and insulation by the mid-1970s after it was linked to cancer and other diseases. Litigation persists because the effects of exposure can take decades to surface.
Now owned by Warren Buffett's Berkshire Hathaway Inc , Johns-Manville had from the 1920s to 1970s been the largest U.S. maker of products containing asbestos.
It filed for bankruptcy protection in 1982 under the weight of asbestos litigation, and settled various claims in 1986. Johns-Manville emerged from Chapter 11 in 1988.
The 2nd Circuit rejected Travelers' contention that it need not pay claimants in light of a June 2009 U.S. Supreme Court decision that limited claims against the insurer, and a separate decision by the 2nd Circuit the following March. It also said Travelers had waived potential objections to the payment.
"Obviously, we're gratified," said Ronald Barliant, a partner at Goldberg Kohn in Chicago who represents about 1,600 claimants. "Payments should have been made five years ago."
Sander Esserman, a partner at Stutzman, Bromberg, Esserman & Plifka in Dallas representing other claimants, said he looks forward to Travelers "paying the thousands of plaintiffs who are owed money."
Paul Clement, a partner at Bancroft PLLC who represents other claimants, was not immediately available for comment.
The 2nd Circuit heard oral arguments in January 2013.
Separately, Travelers on Tuesday posted a larger-than-expected 26 percent drop in second-quarter profit, as hail and windstorms boosted catastrophe-related losses. Its shares fell as much as 5.1 percent by early afternoon.
The case is Common Law Settlement Counsel et al v. Travelers Indemnity Co et al, 2nd U.S. Circuit Court of Appeals, Nos. 12-1094, 12-1140 and 12-1205. (Reporting by Jonathan Stempel in New York; Editing by Meredith Mazzilli, Lisa Von Ahn and Tom Brown)